Bank of America (BofA) increased its price targets for Ciena (CIEN.US) and Cisco (CSCO.US) on Tuesday, citing continued "resilient" growth momentum in the optical networking market. Analyst Tal Liani noted in a report that Cisco's recently released Q3 FY2026 results and commentary on sustained strong demand for its Acacia business support an optimistic view of the underlying demand environment for optical networking. Liani maintained a "Buy" rating on both Ciena and Cisco.

Cisco reported strong Q3 FY2026 results on May 14, 2026, with revenue and earnings achieving double-digit growth and exceeding prior guidance. The company achieved a record total revenue of $15.8 billion, a 12% year-over-year increase. Product revenue reached $12.1 billion, up 17%, primarily driven by robust demand for AI infrastructure and campus networking.

Liani wrote that Cisco disclosed Acacia orders exceeded $1 billion in the quarter, with AI-related optical component revenue growing nearly fourfold year-over-year to approximately $950 million. Additionally, demand for non-AI optical components from hyperscale data centers contributed to further growth.

The bank highlighted the migration trend from 400G to 800G pluggable optical modules, positioning both Cisco and Ciena favorably to maintain leadership in this rapidly growing optical networking cycle. BofA raised its earnings forecasts for both companies to reflect their strong participation in AI-related infrastructure build-outs.

Cisco's price target was raised to $135 from $114, based on a 2027 estimated enterprise value to free cash flow multiple of 29x, up from 25x. Ciena's price target was increased to $660 from $550, based on a 2027 estimated price-to-earnings multiple of 69x, up from 62x.

As hyperscale data center operators accelerate infrastructure upgrades, high-speed optical networking technology is rapidly migrating from 400G to 800G. BofA estimates the global market for 800G ZR/ZR+ optics will expand nearly tenfold in 2026, with its share of the total optical market jumping significantly from 4.6% in 2025 to 35.5% in 2026.

Cisco currently holds over approximately 50% share in the 800G segment, while Ciena holds about 30%. However, Ciena is expected to gain further market share due to its more power-efficient 3nm DSP technology.

The strong performance of Cisco's Acacia optics business exemplifies this trend. Acacia orders exceeded $1 billion in Q3, with AI-related optical revenue growing nearly fourfold year-over-year. The business has shipped over 750,000 400G and over 40,000 800G coherent pluggable modules, with full-year FY2026 growth anticipated to exceed 200%.